Q3Managerial Economics & Financial Accounting
Question
2 marks
Explain the relationship b/w Average cost and Marginal cost with the help of a diagram.
Answer
The Marginal Cost (MC) curve always cuts the Average Cost (AC) curve from below at its lowest point.
The relationship between Average Cost (AC) and Marginal Cost (MC) is mathematical:
1. When MC < AC, the AC curve is falling. 2. When MC > AC, the AC curve is rising. 3. When MC = AC, the AC curve is at its absolute minimum. The MC curve cuts the AC curve from below at exactly this lowest point.